Analysts expect Budget to revive investment, consumer sentiment

Tribune News Service

New Delhi, January 23

With the note ban likely to have a negative impact on the economic activity in some sectors in the next two to three quarters, it would be keenly watched how the government seeks to offset this and boost consumer and investment sentiment in the upcoming Budget, says an ICRA report.

The report said modest relief in the form of reduced direct taxes and subventions to the lower-income groups could also be provided to give a fillip to consumption growth. On income rates, ICRA said “In our view, the exemption limit and slabs for personal income tax could be maintained at the current levels”.

It, however, said, a rebate of Rs 5,000 (equivalent to an increase in the exemption limit from Rs 2.5 lakh to Rs 3 lakh) could be provided to the taxpayers, to give some concessions to the salaried class.

According to ICRA, the service tax rate could be increased to align it closer to the rate expected under the GST. The dividend distribution tax could be reduced, with such income being made taxable at the level of the investor.

The analysts’ view is divided on the quantum of cut in income tax concessions. The focus of the forthcoming Budget is likely to be on direct taxes since the Goods and Services Tax (GST), to be introduced in July, will lay down the rates for industries.

According to SBI Research, the Budget is likely to make a sweeping recast of direct taxes focusing on both corporate tax and personal income tax to give a boost to the economy.

“Due to the 7th Pay Commission, the personal disposable income has been increased, so we believe there is a need to raise the exemption limit to Rs 3 lakh. Due to such increase in limit, 75 lakh taxpayers will be exempted from income tax,” the report said. As the savings rate is declining, there is a need to increase the 80CC deduction by least Rs 50,000 to Rs 2 lakh.

SBI Research says it expects the government to increase the exemption limit of interest payments under housing loan to Rs 2.5 lakh for existing home loan buyers from the current level of Rs 2 lakh. This will cost government around Rs 7,300 crore.

“The overall impact of such concessions will result in revenue foregone of around Rs 35,300 crore. However, we are expecting a tax collection under IDS to be around Rs 50,000 crore and cancelled liabilities from RBI to be around Rs 75,000 crore. Hence, the government still have a sizeable revenue surplus even after such giveaways”, the report said.